NOTE 4: SEGMENT INFORMATION

a. The Company and its subsidiaries operate in two business segments. The two segments are also treated by the Company as reporting units for goodwill impairment evaluation purposes. The goodwill amounts associated with the Training and Simulation Division and the Power Systems Division were determined and valued when the specific businesses were purchased.

The Company’s reportable segments have been determined in accordance with the Company’s internal management structure, which is organized based on operating activities. The accounting policies of the reportable segments are the same as those used by the Company in the preparation of its annual financial statements. The Company evaluates performance based on two primary factors, one is the segment’s operating income and the other is the segment’s contribution to the Company’s future strategic growth.

b. The following is information about reported segment revenues, income (losses) from continuing operations, and total assets as of and for the periods ended June 30, 2017 and 2016:

Training and

Simulation

Division

Power Systems

Division

Corporate

Expenses

Total

Company

Six months ended June 30, 2017

Revenues from outside customers

$

20,543,003

$

23,253,135

$

–

$

43,796,138

Depreciation, amortization and impairment expenses(1)

(548,125

)

(1,531,811

)

(2,272

)

(2,082,208

)

Direct expenses(2)

(18,050,604

)

(22,155,430

)

(1,839,027

)

(42,045,061

)

Segment operating income (loss)

$

1,944,274

$

(434,106

)

$

(1,841,299

)

$

(331,131

)

Financial income (expense)

(37,270

)

(177,748

)

(334,026

)

(549,044

)

Income tax expense

(70,000

)

44,512

(457,272

)

(482,760

)

Income (loss) from continuing operations

$

1,837,004

$

(567,342

)

$

(2,632,597

)

$

(1,362,935

)

Segment assets(3) (4)

$

45,133,954

$

59,898,807

$

3,288,523

$

108,321,284

Additions to long-lived assets

$

2,356,724

$

926,946

$

–

$

3,283,670

Six months ended June 30, 2016

Revenues from outside customers

$

24,647,137

$

22,539,221

$

–

$

47,186,358

Depreciation, amortization and impairment expenses(1)

(549,027

)

(1,775,382

)

(10,257

)

(2,334,666

)

Direct expenses(2)

(20,422,716

)

(20,765,715

)

(3,490,364

)

(44,678,795

)

Segment operating income (loss)

$

3,675,394

$

(1,876

)

$

(3,500,621

)

$

172,897

Financial income (expense)

(14,811

)

(35,027

)

(492,016

)

(541,854

)

Income tax expense

(93,630

)

(109,361

)

(379,289

)

(582,280

)

Income (loss) from continuing operations

$

3,566,953

$

(146,264

)

$

(4,371,926

)

$

(951,237

)

Segment assets(3) (4)

$

43,752,823

$

59,158,134

$

8,450,523

$

111,361,480

Additions to long-lived assets

$

165,066

$

666,329

$

–

$

831,395

Three months ended June 30, 2017

Revenues from outside customers

$

10,191,814

$

11,256,879

$

–

$

21,448,693

Depreciation, amortization and impairment expenses(1)

(277,461

)

(686,100

)

(1,184

)

(964,745

)

Direct expenses(2)

(8,672,907

)

(11,064,098

)

(863,563

)

(20,600,568

)

Segment operating income (loss)

$

1,241,446

$

(493,319

)

$

(864,747

)

$

(116,620

)

Financial income (expense)

(24,602

)

(27,601

)

(162,984

)

(215,187

)

Income tax expense

(35,000

)

816

(228,636

)

(262,820

)

Income (loss) from continuing operations

$

1,181,844

$

(520,104

)

$

(1,256,367

)

$

(594,627

)

Three months ended June 30, 2016

Revenues from outside customers

$

11,346,295

$

10,433,582

$

–

$

21,779,877

Depreciation, amortization and impairment expenses(1)

(276,367

)

(874,491

)

(8,770

)

(1,159,628

)

Direct expenses(2)

(9,494,982

)

(9,664,106

)

(1,457,244

)

(20,616,332

)

Segment operating income (loss)

$

1,574,946

$

(105,015

)

$

(1,466,014

)

$

3,917

Financial income (expense)

(3,750

)

(5,973

)

(194,473

)

(204,196

)

Income tax expense

(30,830

)

(109,361

)

(228,636

)

(368,827

)

Income (loss) from continuing operations

$

1,540,366

$

(220,349

)

$

(1,889,123

)

$

(569,106

)

(1)

Includes depreciation of property and equipment and amortization expenses of intangible assets.

(2)

Including, inter alia, sales and marketing, general and administrative.

(3)

Out of those amounts, goodwill in the Company’s Training and Simulation and Power Systems Divisions totaled $24,435,641 and $21,647,674, respectively, as of June 30, 2017 and $24,435,641 and $21,052,329, respectively, as of June 30, 2016.

(4)

Cash balances previously reporting in the Training and Simulation Division in 2016 are now reported in Corporate in 2017.

The entire disclosure for reporting segments including data and tables. Reportable segments include those that meet any of the following quantitative thresholds a) it's reported revenue, including sales to external customers and intersegment sales or transfers is 10 percent or more of the combined revenue, internal and external, of all operating segments b) the absolute amount of its reported profit or loss is 10 percent or more of the greater, in absolute amount of 1) the combined reported profit of all operating segments that did not report a loss or 2) the combined reported loss of all operating segments that did report a loss c) its assets are 10 percent or more of the combined assets of all operating segments.